Monday, July 22, 2013

Budgeting for Poverty With McDonald's and Visa

McDonald's and Visa have come together in a new initiative which purports to show low-wage workers how to survive, and even thrive financially on their meager earnings.

At their new Practical Money Skills for Life™ website you can find a pdf file sample budget, ostensibly designed to be a framework for workers to use in order to successfully manage their income while working at McDonald's.

It is certainly a good idea to have a budget, to practice good financial techniques, to minimize spending and the like, but no budget will solve the problem of not having enough money to meet the most basic living expenses. This core truth is completely overlooked by McDonald's and their collaborator. This then sets the stage for victim-blaming, rather than making a factual presentation. The premise they present here, is that if a worker is having financial troubles it is the worker's own fault.

The introductory video is immediately condescending to the viewer/worker and assumes that you lack the elementary concepts of basic addition and subtraction arithmetic, or even common sense. While some workers may be woefully uneducated and lacking in life experience, it appears that the true ignorance here rests with the creators of the fast-food giant's presentation.

As an example, almost any worker knows full well that taking a pay-day loan is financially unsound, being both risky and costly. What the creators of the video ignore is that a worker does not need to be taught this point as a lesson, as if it were some great revelation bestowed by a benevolent corporation out of sheer good will. The worker who does take such a costly risk by taking out a pay-day loan does it out of necessity, not stupidity. The payday loan industry thrives on the desperation of the poor, not on people who ant some extra spending money.

The video also encourages the viewer to get direct-deposit for their paycheck, and to have a bank account, in order to save on check-cashing fees. But again we see that the creators have ignored the reality of the situation for many of their workers. Some financial institutions will not let a person with poor credit have an account. Low-wage workers are, of course, more likely than most to have a poor credit rating. In other instances, a bank or credit union may not be easily accessible in their neighborhood or along their travel routes. Banks often require a large minimum balance, leaving substantial funds inaccessible to the depositor.
But most important of all perhaps, is that bank accounts are riddled with costly pitfalls. Visa check-cards exacerbate those dangers to workers who are subject to an array of hidden maintenance, access, and penalty fees.

For many people it is not only easier, but actually wiser to just spend a few dollars to cash their paycheck at a local supermarket, or check-cashing store. In this instance, a former McDonald's worker has been forced to sue for her right to be paid in legal tender, after her employer refused to pay her in any form other than a fee-laden debit card like those issued by Visa.

Even with the best financial practices, no human mistakes, and no unforeseen emergencies, a person still needs enough money to meet basic expenses. A sound budget will never work without enough money to put into that budget in the first place. So let's have a look at what McDonald's sees as a reasonable budget for a worker to, as they put it, "have almost anything you want as long as you plan ahead and save for it."

Right at the start, McDonald's is admitting that a full-time worker at one of their restaurants does not earn enough to support themselves. Their budget demands from you that you get a second job, if you are lucky enough to find one at all, much less one that is compatible with your full-time and often irregular hours at one of their establishments. If you can't get a second job, for whatever reason, the full-time low-wage worker will be forced to go on welfare, or get at least some sort of public assistance.

What this means is that taxpayers are subsidizing the labor expenses of major corporations like McDonald's. We the taxpayers are now forced to pay a contribution in order to make sure that McDonald's workers actually show up for work in the first place, and that the worker is fed, clothed and healthy enough to perform their task. While these corporations reap billion dollar profits, and the CEO of McDonald's makes about $5,000 an hour, the taxpayers are forced to pay a share of their business expenses. In 2012, Wal-Mart workers were forced to rely on $2.6 billion in taxpayer relief. That directly translates into $2.6B in additional profits for the Walton family, who are more wealthy then the bottom 40% of all Americans combined.

Now let's go ahead and take a look at the person who winds up actually being lucky enough to have two jobs, and is in turn forced to pay taxes to help support the worker standing next to them who works only one full-time job. This budget projects a net monthly income of $2,060. Based on the 2012 IRS tax liability tables, a minimum wage worker earning $7.25 an hour would have to work 76 hours per week in order to have a net monthly income of $2,060. So much for the notion that poor people are lazy. This is essentially two full-time jobs, especially since employers won't usually let a worker hit the 40 hour mark in a week, for fear of having to pay an overtime wage.

This obviously leaves no time for continuing education, and precious few hours to spend with family or trying to raise your children. Contrary to the popular notion, teens do not make up the majority of minimum-wage workers. Roughly 90% are over the age of 20, and about 30% of minimum wage workers are trying to raise a family on that budget.

But surely a person working two full time jobs, nearly 80 hours a week, must be living fairly well, right? Well, let's have a look at budgeted expenses.

The first line item in that section is savings. Anyone who can afford to save, must actually have an income that exceeds the rest of their expenses. Saving for the future is not only good advice, but absolutely necessary in order to build any sort of future It is even necessary to simply offset an array of inflationary factors which have undermined the American worker since our heydey in the 1950's.

Unfortunately, this budget is actually completely impractical and that $100 figure is completely unrealistic.

Looking at the next item we see how unrealistic it actually is. $600 for rent is unheard of in most parts of the country. The average rent last year in the US was $1,048 monthly. In New York, it is over $3,000 a month. One might suggest getting a roommate to split the rent, but then again we might also assume that this budget is actually written out for two people working at McDonald's full time, and who decided to move in together to share the bills because they couldn't find a second full-time job for themselves. So even with a roomate or spouse also working full time, this budget is still not practical, as we shall further see.

(It could also be noted here that forced cohabitation can set someone up for all sorts of costly and life-damaging problems. Roomates can be an annoyance when they interfere with necessary sleep, but you are also vulnerable to thievery, fraud, and even being named as a criminal conspirator if they use the residence as part of an illicit enterprise. This socioeconomic dynamic has also pushed unwed couples to cohabitate prematurely, leaving them trying to force a frustrating and volatile relationship work out of simple economic necessity. This of course, is at the root of so many instances of domestic violence. Problems like these can wind up costing a worker for court fees, time missed from work, and more.)

Their budget does account for a car payment, but that figure is unrealistically low for the actual cost of operating a car. Insurance alone would easily double that figure, not to mention gasoline, maintenance, and repairs. Our own research has shown that the expense for basic auto transportation is roughly $500 a month. Public transportation may not give a significant reduction in transportation costs, and is not often available in many areas.

The next item combines home and car insurance into one item. Renters insurance is an excellent idea, and protects against all sorts of mishaps, like losing everything you own in a fire, or to a break in, but it is not really something that most low-wage workers can actually afford. Insurance for a homeowner is far more expensive than their figure, but we can assume that most people who work at McDonald's do not, and probably never will own their own home. They should not have even included car insurance there, but even for liability only that figure is very low, especially for younger drivers, or someone who may have had an accident. If you are making payments though, you need full coverage, which would be many time more per month than what they have calculated for.

For health insurance they have posted an absolutely absurd figure of $20 per month. Over-the-counter medicine to treat the flu would cost you more than that. McDonald's own basic plan for a single person with no children is $61 a month, with a maximum annual payout of $2000. (See: pdf) The plan also requires you pay a deductible and a single co-pay is $20. That $20 is, as you see, all they have budget for here, but not the actual cost of the insurance. Hardly sound financial advice from these supposed experts who worked on this project with them.

They must also assume that you live in Hawaii where it is practically 75-degrees year-round, because this budget allot for $0 in heating (or air-conditioning) expenses.

Cable and phone at $100 a month. This is possible, but you would not be able to afford a cellphone which is a nice convenience that can actually save you money and is indispensable in an emergency. Someone who is working 76 hours a week would probably choose to have a cellphone and eliminate television entertainment for the few hours that they are actually at home. They can just sit and stare at a wall until they fall asleep.

Their calculation for electric is not entirely unreasonable, but will vary widely from region to region and in different rental units. If there is electric heating for example, that figure could easily be two or three times as much per month. That would obviously wipe out their "other" category instantly.

At the end of the McDonald's budget we see they have allotted for $27 a day in spending money. Perhaps they expect workers to take all of their meals where they work, as the budget has not accounted for any food or grocery expenses. The health consequences alone would be devastating for a worker who made fast-food the staple of their diet, but $27 a day is not really enough for that anyway. The average cost in the US for a Big Mac value meal is $6.64, though it is often several dollars more in metro areas like NY. This would leave you with about $7 for gas, and nothing to feed your family. You also wouldn't have money for garbage bags, light bulbs, toothpaste, aspirin, haircuts, deodorant. You also wouldn't have money to do laundry, but you don't have a budget to buy clothes anyway, so go ahead an just wear that stinky McDonald's uniform without any underwear on, every single day.